LONDON: African markets are gradually opening to Islamic finance, buoyed by governments` debut sales of sovereign sukuk (Islamic bonds) and legislative efforts to make the sector more attractive for companies across the region.

Despite the strong growth of Islamic finance in its core markets, the Middle East and Southeast Asia, the industry has lagged in Africa, which is home to one in four of the world`s Muslims. This year, however, a string of transactions is helping to broaden the sector.

Governments across the continent are using sulcuk as a way to attract cash-rich Islamic investors, with South Africa making a $500 million issue in September and Senegal raising 100 billion CFA francs ($208m) in June.

The Tunisian government could soon follow with a dollar-denominated deal that it hopes to place by year-end; Kenya is considering a sukuk issue.

Nigeria`s Osun State made a small local-currency sukuk issue last year and Gambia has been issuing short-term Islamic paper in its own currency for years, but the region`s booming dollar-denominated bond market could hold the greatest promise.

The Eurobond market in sub-Saharan Africa saw a record $14bn in issuance last year and the figure is $10bn so far this year, said Megan McDonald, global head of debt primary markets at South Africa`s Standard Bank. Eventually, 15 per cent to 20pc of such issues could be sukuk, as the market will develop over the next two to three years, said McDonald, whose bank was joint lead manager of South Africa`s debut sukuk issue.

`We do expect to see others, firstly government-linked institutions in South Africa such as Transnet, Eskom and SANRAL, which the Treasury is hoping can tap the market.

South Africa attracted $2.2bn in orders for its sukuk and has not ruled out tapping the market again, and interest in making issues is also coming from other state and national governments, McDonald said.

`The Treasury is open to coming back to the market. The sukuk programme is set up in such a way they can do that.

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